From age old recipes like idli, dosa and vada batter to samosas, fresh juices, yogurts and fresh meat, food start-ups in India are redefining the way of life for new age consumers. Food start-up founders, mostly with no prior exposure in this space, are making their own rules.
Rohan Mirchandani of Drums Food International, is one such founder. When he visited Mumbai for a week in 2012 to take a class in 'Marketing for Indian Consumer' as a part of his Wharton degree, he attended a lecture by Shripad Nadkarni, former marketing head of Coca-Cola, which opened his eyes to the opportunity that India held for consumer brands. Mirchandani was convinced and he bought a one-way ticket from the US to India in January of 2013. In 2014, Mirchandani co-founded ice-cream brand Hokey Pokey and a year later, in June 2015, launched Greek yogurt company Epigamia to overcome the seasonality of ice-cream business. Today, Epigamia sells close to 3.5 million units per month.
P.C. Musthafa, founder of iD Fresh, followed another route. He used to live in Chennalode, a small village in the Wayanad district of Kerala, with his family which survived on the daily wage of his father who worked as a labourer. Having breakfast everyday was a luxury. A school drop-out who went on to pursue an engineering degree and an MBA at IIM Bangalore, Musthafa marked his entry into the food world in 2005 with the setting up of iD Fresh, as he set out to solve the business problems of his cousins, who ran a kirana store in Bengaluru that sold idli and dosa batter. Today, iD Fresh is a brand that can be found in the refrigerators of most households that swear by south Indian breakfast.
What is it that is drawing elite management and technology graduates to start F&B start-ups? Is it just passion or market opportunity? Nidhi Singh says both. For the husband-wife duo of Nidhi and Shikhar Singh who started Samosa Singh in 2016, it was all about selling an international snack that already had an established market unmet demand. "We did not see why a samosa could not be picked up and a brand created around it. A lot of people warned us that samosa was too simple a product but that's the beauty of it," she says.
While the bigger brands of legacy companies still dominate in terms of volumes, start-ups are looking to leverage the new learnings of millennials through social media to create brands. "There is a revolution happening in food," says Mirchandani. "India has the second largest social media data base in the world. You don't have to travel to Europe or the US to know what is happening around the world, and Indian consumers don't want to feel ignored," he adds. That's precisely the void that start-ups are filling. The newer start-up brands are not only serving the international flavour profiles and products but are also quick to acknowledge changing food trends and tweak their offerings accordingly. To exploit the market, founders are adopting a go-to-market strategy. As the need is for targeted and sharper communication, smart channel play is an important tool for most start-ups. Kanwaljit Singh, Founder and Managing Director, Fireside Ventures, says, "As more online channels are getting into the food and beverage space - whether it is Amazon Pantry, Big Basket or Flipkart - the knowledge of how to leverage different types of go-to-market channels and get the best outcome is becoming a big part of the brands sold."
While going online might be an easier route to reach millennial consumers, Nidhi of 'Samosa Singh' says cracking the retail market and finding the right B2B partners is even more critical in the volumes game. "We were very clear from the beginning that we wanted to be associated with bigger brands as it gives us better visibility and people tend to trust your brand a little bit more," she says. They tied up with PVR and Inox to replace their existing samosas, and then with companies like Wipro, Bosch and Sodexo to enhance the corporate reach, apart from running 21 retail outlets primarily in Bengaluru and Hyderabad. Epigamia also has tie-ups with several big retail chains such as Godrej Nature's Basket, Big Bazaar, Reliance Retail and D-Mart and hotel chains such as Taj Group, Crowne Plaza, Marriott and Westin for the same reason.
A focus on 'clean' labels is also part of the niche playbook. Healthier, less-chemical, less-preservative foods are turning out to be a huge draw for packaged labels. "I think we have been successful to some extent in making affordable healthy food," says Musthafa. With an average of 200,000 transactions everyday "we have an opportunity to create a McDonald's out of India," he says. That's the reason for iD offering five products. Apart from idli, dosa and vada batter, the company sells chapatis, several types of parathas and the latest addition being filter coffee decoction.
A complete control on logistics and supply chain is another important aspect for most food start-ups. In perishable products, where wastage is 10-40 per cent, supply chain is the blood line of controlling product quality. iD Fresh has invested in over 350 vehicles with 600 sales persons who place the right quantity in close to 20,000 stores every day. Same goes for meat and seafood brand Licious .
Most Indian consumers are used to buying fresh meat and seafood from the nearest wet market. So getting that delivered at the doorstep was integral part of making the business work at Licious. "We wanted to control our distribution and not distribution control us," says Abhay Hanjura, co-founder of the company. This is a more difficult distribution route. "Initially it was very difficult, but it is important to keep the product close to the consumer."
Even as bigger companies are showing interest in understanding what these start-ups are doing, a big-ticket acquisition is yet to be seen. Most F&B start-ups are still in a growth phase and raising funds is not a hurdle. For instance, the funding into the sector has more than doubled in the past four years, from around $32 million in 2015 to over $70 million in 2018, according to Tracxn. Also, many entrepreneurs are looking at a long-term play. Hanjura of Licious, which is currently the largest B2C player in the segment, says the company is now looking at revenues in excess of Rs 200 crore by next year. "We are competing in a $40 billion-market where 92 per cent demand is fulfilled by the unorganised players. We haven't even started off," he says.
Some FMCG companies have, however, taken initial steps into the business with consumer brand focus funds like Fireside Ventures. ITC, Unilever Ventures and Marico's Harsh Mariwal's family office are some of the marquee investors in Fireside's fund. "For a large company, this becomes a very concentrated way of understanding what the new way of doing business is with a millennial brand," says Kanwaljit Singh of Fireside Ventures, adding that large companies acquiring start-ups with interesting brands and unique narratives can't be ruled out. While interest may be high, most industry observers believe that the funnel of start-ups attaining the right critical mass is just starting to build and perhaps the next big-ticket acquisition is just around the corner.